Married to Accounting, always in love with Science, has been cheating with Anti-Money Laundering

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Yesterday a friend of mine posted an article about journalists boycott against Starbucks Coffee on his facebook page. The article says that the coffee shop chains is ultimately owned by the infamous Sjamsul Nursalim, one of the Indonesian tycoons who had allegedly embezzled USD 607 million of the state’s money through BLBI scheme. Sjamsul has reportedly resided in Singapore since he was granted a discretion to fly there for “medical treatment” few years ago.

Sjamsul Nursalim is not alone. In 2006, the Indonesia Financial Intelligence Unit (PPATK) reported that as many as 200 financial crime fugitives from Indonesia were residing in Singapore. How much money have these crooks brought into Singapore’s financial systems? Dradjad Wibowo, an economist, came up with an estimate of USD 120 billion.

Interestingly, the Government of Singapore has consistently stated that they do not hide corruptors. Furthermore, the spokesperson of Singapore Corrupt Practices Investigation Bureau said that “In regard to foreign corruption fugitives, as long as sufficient evidence is provided to show that money laundering or any other offence has been committed in Singapore the law enforcement authorities will take swift and necessary action to investigate and/or seize the assets.”

Good. But wait, if that’s the case then why our corruptors keep choosing Singapore as their “safe haven”?

Here is the way I see it.

If “evidence” is what Singaporean Government requires from us, then forget about the investigation, let alone asset seizure or extradition. To provide an evidence, our law enforcement has to conduct an investigation first. And corruption case investigation can take months or even years before it reaches the conclusion. By the time the evidence enters the courtroom, the dirty money would have travelled halfway around the globe.

Good news is, a device called anti-money laundering (AML) has been invented. In AML, evidence is not critical. Rather, we use “suspicion”. Assume you’re a staff of a bank in Singapore. If an Indonesian customer deposits millions of dollar and you’re not convinced about the source of the money you should file a suspicious transaction report (STR) to Suspicious Transactions Reporting Office (STRO). Ideally, STRO will then analyse your report and liaise with the local law enforcement and/or PPATK, their peer in Indonesia. If the report is accurate, the analysis robust and the two financial intelligence talk to each other, an effort to hide proceed of crime in off-shore accounts may have been detected. And if this occurs consistently money launderers would think twice before entering Singapore’s financial system.

If that’s the case, then why is billions of dollars of “grey money” sitting there? Are the suspicious transaction reports from the industry accurate? Or do they report at all? Well, Singaporean Government claims that they have implemented a high standard of anti-money laundering. We should not worry about the industry then. They should have behaved as expected. Besides they’re world class financial institutions. They’re bound to global requirements on AML, which if they do not comply they would be banished from the global financial services community.

Now, let’s put things into perspective. We have hundreds of corruptors and criminals hiding their money in Singapore. Being bound to global AML requirements and regulated by a stringent AML standards, Singapore’s financial institutions have most probably implemented a robust AML system and reported criminals’ financial activities to the regulator. Unfortunately, what the regulator has done with the reports remains a mystery as you’re prohibited from tipping-off suspicious transaction reports.

Nevertheless, one thing for sure, whoever says that “evidence” is a prerequisite so that any foreign government can help us trace corruptors’ money knows nothing about money laundering. In the Singapore case, for example, “evidence” may not be the key word. “Good faith” is.

A friend of mine has just recently forwarded me an article on why poor African countries stay poor despite of such a many western aids. The investigative journalist who wrote the article says that accute corruption has been the root cause. The westerns, he adds, may have lent a hand, but their other hand has quietly received the proceed of the corruption. The money is brought into (and is kept in) their financial system through a set of sophisticated money laundering methods. The article leaves us a disturbing statement (or question, to be precise):

It is no surprise that many Africans are left asking the developed world: “Why do you frown publicly about corruption, yet turn a blind eye to its fruits?”

I must say I don’t have anything against what the journalist says. Money laundering is a global phenomenon. Africa is not the only “victim” and the westerns are not always the “culprit”. Illicit money from Indonesia has been reportedly flown to Singapore to be distanced from its source (corruption, tax fraud, drugs dealings, trafficking). Many of us may have heard that most expensive properties in Singapore are owned by Indonesians. A number of corruption convicts are even reported to secure their assets there to avoid disgorgement.

The big question would be: what happen to the global anti-money laundering initiative that was launched 25 years ago by FATF? Why today, years after, people are still complaining about corruption being left untraced?

Here is what might have happened.

Imagine yourself, a relationship manager in a bank, being approached by a prospective corporate client. You had never heard of its name, but were told that they were going to bring in a lot of money.

What you didn’t know was that this company was ultimately owned by a high-rank government official in an African country. The company was established to launder the proceed of corruption and had been run by the owner’s middlemen in many countries.

Chances are:

You might have been tempted by the big portfolio that awaits you, and forgot all the procedures you should have undertaken in client onboarding. You didn’t even care if your client’s transactions are suspicious, as long as they bring you revenue. If that was the case, you shouldn’t be surprised that corruption remains. You should stop blaming your government too, for it’s people like you who help these crooks secure their dirty money.

Okay, let’s say you were much better than that. You did what you have to do as a professional banker. You verified all the client’s document, conducted background search, and reported suspicious transactions to your Financial Intelligence Unit (FIU or “PPATK”). Unfortunately, your FIU sucks. They don’t care too much about financial crime outside their jurisdiction. They thank you for your report and then put it in their drawer. That’s it, there goes your findings.

Or, let’s be more positive. Assume you were a good professional banker and were lucky enough to have a good FIU. After analyzing your report, your FIU would contact their peer in the African country, where the predicate crime took place, and forward your finding to them. The beneficiary FIU is supposed to work together with their law enforcement to investigate the suspicion. There’s a problem though, you’re dealing with a corrupt government –with corrupt law enforcement– and your case ended up in a trash bin.

The above hypothetical case is a proof that AML regime requires a robust compliance culture of the financial services industry, strong law enforcement, and mutual relationship
amongst FIUs and governments. If, and only if, all those condition is present will the regime work.

The remaining question would be which of the above factors is responsible for the Africa issue? I’m not sure, but I suspect it’s all of them.

The public was really shocked when the chairman of a so-called “clean” political party arrested for bribery. Some people even came up with a conspiracy theory, as if we don’t have enough Eyang Subur-type of stories. Well, we humans have a tendency of judging anything by its face value. How many times have we said “it can’t be him/her” and than are proven wrong? My advice, please accept this simple principle: physical attributes and even good manners do not tell you anything.

Most people would agree with such principle, some would pretend to. But if you’re an investigator or an auditor, you don’t have any choice, you’d better live it. Talk to computer forensic investigators. They can tell you how many porns and other indecent materials they have found in a computer that belongs to orang baik-baik. During an investigation, I once was shown a love email of a married man to his secret date, written side by side on the timeline with a full-of-love email to his wife. I met the man and realized that had I not seen his emails I would have thought this ass-hole was a saint.

In short, you don’t judge a book by its cover, otherwise you might impair your professional judgment.

Be mindful that fraud, including corruption, is different from street crime. Unlike sinetron stories, where you can distinguish the good guys from the bad only by their looks or expressions, real life doesn’t work that way. White collar criminals do not look like criminals. They’re smart, well-educated, and might even be religious. And who says fraudsters are predominantly male? I’m not being sexist here, but there’s no research that proves females are less likely to perpetrate fraud. Oh and by the way, the toughest fraud suspect in my career history was female. A pregnant one.

Reader’s Digest magazine launched an interesting survey few years ago. Their reporters from the most populous cities in 32 countries left 30 mid-priced mobile phones in public places in each city. Two local reporters worked as a team – one left the phone behind in a busy public place, while the other observed the mobile discreetly from a distance. Then they recorded what happened next.

Below is one interesting part that I quote from their story.

Wealth was no guarantee of honesty. In prosperous New Zealand, a smartly dressed woman in her fifties grabbed a “lost” mobile from a ledge in front of upmarket Auckland department store Smith and Caughey’s, bolted down the street, and never attempted to contact our reporter. By contrast, a young Brazilian woman, who looked almost destitute and had three young children in tow, handed back a mobile phone she picked up in a São Paulo park. “I may not be rich,” she said, “but my children will know the value of honesty.”

So I personally learnt that I shouldn’t take things for granted. In the course of my work I gather my evidence, perform my analysis, and even challenge my own conclusion afterwards. All because people may not be how they look. Then again, why should they be?

Me: Hey look at this ad, a seminar on how to get rich fast and easy. This guy is gonna teach you how to earn expensive properties without having to pay.

My Alter Ego: Yeah right, dream on.

Me: See? That’s why you’re still a corporate slave after years of career. You don’t have an entrepreneurial mind.

My Alter Ego: I may not, but at least I’m not fooled by some ad that shows a guy in suit with a weird grin on his face.

Me: Now you’re being sarcastic

My Alter Ego: May be, I don’t really care. These people deserve it.

Anyway, that’s not my point.

Me: I’m listening.

My Alter Ego: There’s nothing new under the sun. You wanna get rich? Be smart, work hard.

Me: No, the ad says we can get rich fast and easy

My Alter Ego: Sure, marry one of the Bakrie’s girls then

Me: They’re taken already. Seriously, man, what’s your point?

My Alter Ego: Ok, have you heard about information asymmetry?

Me: Well I guess it’s something to do with a situation in which a party has more information compared to its competitors.

My Alter Ego: Exactly. Information gap. The wider the gap, the bigger advantage you’re gonna get from the market.

Me: Plain english please?

My Alter Ego: Zuckerberg got rich because he was the one who succesfully packaged and sold social networking even before people started thinking about it. Of course there was Friendster before Facebook, but they didn’t do it right from the beginning, they missed their chance.

Me: Hang on, what about Twitter? More people are switching to twitter after they get bored with facebook.

My Alter Ego: Twitter explored even further need of human being: recognition. It indulges your narcissism by those following-follower things. The idea was so genuine, and most importantly nobody saw it coming. Information asymmetry.

Me: Then there come the followers …

My Alter Ego: Correct. People start to be aware about the opportunity. They jump into the business. The gap is narrowing, the competition is getting more crowded, and you’re gonna end up sharing the margin of the business with your competitors.

Me: So basically if you’re doing same old shit that others have been doing, you may survive the competition but are not gonna be like Gates or Rockfeller.

My Alter Ego: Aha, you’re getting smarter

Me: I’m not sure if that’s a compliment, but thanks. So that was how Ford, Bill Gates, and all those “inventors” made all their fortune?

My Alter Ego: You’re right. That’s the “advantage of the first mover” principle. For sure not all first movers succeeded, friendster for instance, but at least they had their chance.

Me: Ok, assuming you’re right…

My Alter Ego: I am right

Me: Shut up. Assuming you’re right, there’s no fast and easy way of getting rich, unless you know something that others don’t, then what are these rain-maker hot shots teaching in the seminar?

My Alter Ego: I don’t know, but unless they teach you how to turn water into gasoline or how to extract gold out of metal, you’re wasting your time.
Anyway, they might ask you to join some sort of MLM-type business or even a Ponzi scheme.

Me: Ponzi scheme?

My Alter Ego: Good God, no wonder Madoff made millions of dollar from people like you. Ponzi scheme is an investment product that offers ridiculously high returns, which actually are paid from the investor’s own money or the money paid by subsequent investors.

Me: Wow, is that illegal?

My Alter Ego: What do you mean by “is that illegal”? Of course that’s illegal by any legal system on the planet.

Me: Wait, are you accusing them of committing a fraud?

My Alter Ego: No, I am not. Why would I? I haven’t even been to their gathering.

Me: Yes, but sounds to me you hate them so much.

My Alter Ego: “Hate” would not be the right term, they’re not that important.

Tell me, how would you feel about a person who threw Rp100 million bank notes out of a chopper for publicity, so that people attend his seminar, while millions of people out there were breaking their back to earn Rp10,000 a day.

Me: Your point is taken.
Now, you said you haven’t been to their seminar, then how do you know so much about their business?

My Alter Ego: It doesn’t take a weatherman to know which way the wind blows

Chandra M. Hamzah, one of the commissioners of KPK, looked uncomfortable in his seat. He was stuck with a bunch of lawyers, law scholars, and the star of the show, Karni Ilyas. True, this is “Jakarta Lawyers Club”, one of the high-rating TVOne talkshow programs. They were debating the pursuit of Nazaruddin and Nunun Daradjatun. During the debate KPK was critized for being slow and half-hearted in the investigation process. Karni even said that the evidence is scattered everywhere and KPK shouldn’t have hesitated to arrest those who are involved in the conspiration. From the look of his face, I know actually Chandra had a lot to say, but then I caught a flash of something in his expression. Whatever that was, it had stopped Chandra from attending the argument. Lucky for him, soon the predators found another prey, the representative from the Democratic Party, Sutan Batoeghana. I lost my interest and went to bed.

Hours after I watched the show I still wonder what had pulled Chandra back from the debate. I understand that one factor would be the ongoing investigation. You don’t discuss the substance of an ongoing investigation with irrelevant people, certainly not in front of the public. Then I realised, the other factor was the fact that what the current evidence says may not accord with the public’s expectation. It would be pointless to explain the technical things that people wouldn’t understand. Anyway, no matter the truth, people tend to see what they want to see.

Being an investigator is a lonely profession. In contrast with the journalist or politician, an investigator needs to remain impartial no matter how “clear” the leads are. Unlucky for the investigators, in many cases, this is against the public’s expectation. But this is the thing to do as, unlike other ordinary crimes, fraud is always hidden. When a thief breaks into a vault and steals the money in it, that’s a theft. But when a cashier takes the money from the same vault, and records a fictitious payment to conceal her fraudulent act, that’s a fraud. You don’t expect to find a smoking gun in a fraud investigation (you wouldn’t expect a bribe receiver to sign a receipt, would you?). Rather, in many cases, you deal with circumstantial evidence. Using circumstantial evidence means you have to draw inference to come to a conclusion of fact. It may sound simple, but, believe me, it is not.

Now, to make things more complicated, in an investigation the investigators have to perform reverse proof procedures, where to prove that a fraud has occurred, the proof must include attempts to prove it has not occurred, and vice versa. This is required to ensure that the allegation is proved beyond reasonable doubt. Make no mistake, you’re holding somebody’s (and his/her family’s) fate in your hand.

Even when the evidence is there, the investigators still have to ensure a proper chain of custody. Failure to comply with this requirement will lead to inadmissibility of the evidence in the court of law. One little slip, and not only you’ll lose your case but you’ll also be bullied by the defendant’s well-paid lawyers. (Wanna see how they practice? Watch Jakarta Lawyers Club)

Of course, in a country where people are fed up with corruption, like Indonesia, these procedures would look silly. People want to see a fast process and a quick win, and that’s not wrong. But then again, investigation is not about entertaining the public’s wishes. It’s about finding the truth. Compared to other types of fraud, corruption is the most difficult to investigate. Inviting the investigators to a TV talkshow and crucify them certainly doesn’t help. Instead of worrying about how the KPK is running their investigation, I’m more concerned about the new commissioners selection process. For if we fail to elect clean and reliable commissioners, we may lose our last hope for saving our nation from corruption. And if it happens, talkshows like Jakarta Lawyers Club can change their names into Jakarta Comedians Club.